Is the Delisting of Metro Pacific a Bullish or Bearish Sign for the Philippine PSE?

  

Is the Delisting of Metro Pacific a Bullish or Bearish Sign for the Philippine PSE? 

 

Is the delisting of MPI a bullish sign for the Philippine PSE?   Our brief inquiry is premised on the prism of the health of the capital markets, MPI's liquidity conditions, and socionomics. 

 

Manila Bulletin, April 27: (bold mine)  

Metro Pacific Investment Holdings Company (MPIC) is planning to voluntarily delist from the Philippine Stock Exchange after a P48.4 billion tender offer by a consortium of its significant shareholders and Mitsui of Japan. In a disclosure to the Philippine Stock Exchange, MPIC said it has received the Tender Offer Notice from a consortium consisting of Metro Pacific Holdings, Inc. (MPHI), GT Capital Holdings, Inc., Mit-Pacific Infrastructure Holdings, Inc. (MPIH), and MIG Holdings Incorporated. MPHI is a member of the First Pacific Group owning 46.1 percent of MPIC while MPIH is a joint venture of Mitsui and Japan Overseas Infrastructure Investment Corporation for Transport & Urban Development…In a disclosure to the the Hong Kong Stock Exchange, First Pacific said “The Bidders feel that the intrinsic value of MPIC’s core investments in infrastructure in the Philippines has not been fully reflected in MPIC’s share price for some time.” “The tender offer and successful delisting will allow MPIC’s minority shareholders to realize a significant premium over historical share prices of MPIC,” it added. The firm noted that, “At the same time, a delisted MPIC will be better aligned with the objectives of the Bidders to continue investing in long-term infrastructure projects supporting sustainable economic growth in the Philippines.”  

Does the delisting of Metro Pacific signify a bullish sign to the Philippine stock market? 

 

Well, for some people, it is. 

 

The following explains our humble two cents (only our opinion—not a piece of advice). 

 

In the first place, Metro Pacific is an incumbent member of the elite PSEi 30. 

 

Second, the delisting represents a paradox to the goals of the Philippine Stock Exchange (PSE). The PSE has been actively recruiting firms to list. It aims to increase its membership so the PSE can improve its finances. It targets 14 IPOs this year.  

 

But then a member of the PSE pulls out!  Also taken private last February was the erstwhile listed Eagle Cement!  Great.   

 

Third, developing the capital markets (financialization) requires the enlistment of more publicly listed equity and fixed-income securities.  More companies would have access to the public's savings.  Savers may benefit from capital appreciation and dividend/coupon yields of the issued securities.   The public may price shares or fixed-income securities against perceived risk-reward tradeoffs based on the discounting of their future financial performance. 

 

Prices of securities may underpin the collateral values for borrowing.  Based on its market values, equities may help fund various corporate deals, including M&As. 

 

So how will MPI's pullout improve the capital markets? 

 

Next, the news quoted its largest stockholder, First Pacific, stating that "the bidders feel that the intrinsic value of MPIC’s core investments in infrastructure in the Philippines has not been fully reflected in MPIC’s share price for some time."   

 

Have they implied that MPI's pullout represents a "market failure" via share mispricing? And the delisting, thus, marshals this enticing opportunity exclusively to the principal shareholders? Or are they blaming the market for being blind to the profitable opportunities presented?    

 

The thing is, the consensus assertively claims that a bull market is around the corner.  

 

In this case, should a bull market become apparent, could the market not price its share much higher than the tender offer? Therefore, would MPI not suffer a substantial "opportunity loss" by withholding public participation? 

 

Or, if the current majority shareholders are "confident" of the firm's "intrinsic value," why not allow the markets to share this sentiment? 

 

That is, why the choice of mark-to-model instead of mark-to-market? 

 

Or, could it be that the prospects of a bull market and the roseate fundamentals for the firm signify "elusive" aspirations? 

 

But there could be more. 

 

Could MPI’s principal shareholder have been suggesting that the market’s inability to seize and take advantage of its "intrinsic value...for some time" extrapolates to possible signs of emerging liquidity drought?  

 

Let us do a few numbers. 

 

In MPI’s 2022 annual report, its outstanding debt of Php 292.467 billion in 2022 was up 18.7% from Php 246.342 billion, or an increase of Php 46.13 billion!  It reported a net income of Php 13.14 billion, up by 13% from Php 11.7 billion a year ago.  Net debt represented 3.5x the annual marginal gains of net income. Meanwhile, the company's cash reserves dived by 25% to Php 33.6 billion in 2022 from Php 44.9 billion in 2021. Also, MPI’s market cap as of April 28 was Php 122.245 billion.  So in 2022, debt eclipsed its income, while outstanding debt signified over twice its market cap! 

 

I could be wrong; however, does the unrecognized/unappreciated "intrinsic value" constitute the outgrowth of debt over income in the face of falling cash reserves? 

 

Could taking MPI into the private indicate its undertaking remedial liquidity measures through ownership restructuring—post-delisting? That's a guess, though.

 

And let us consider the sentiment.  

 

Is the route to MPI’s exclusivity a symptom of their leadership’s mounting vulnerability? 

 

Aside from compliance costs, is public scrutiny not the primary difference between an exclusive and publicly listed firm?  

 

Is MPIC withdrawing from the public's eye because of this? 

 

It can't be a positive sign to the capital markets when PLDT revealed last year that it overspent by some Php 48 billion in the last four years.   It means that from 2019, their financial reports understated the costs and overstated the income, as previously discussed. 

 

Have the private regulator and authorities, represented by the PSE, SEC, and BSP, done enough to protect the investing public, especially the minority shareholders, and other stakeholders? 

 

And could it be a coincidence that PLDT and MPIC share the same Chairmanship?  

 

We are not interested in intrigues. But could there be a relationship between the recent developments in PLDT and the delisting of MPI?  Or could these incidences represent merely a coincidence?  

Historian Charles Kindleberger presciently wrote that different forms of corporate malfeasance occur on market tops or during bear markets. 

Our task is not to scrutinize this but to see how the current events affect the capital markets.   

 

And based on the field of socionomics, the avoidance of scrutiny could be a sign of vulnerability or a substantial erosion of confidence. 

 

This tweet from Adjunct Professor and Author Peter Atwater explains:  

Environments of low confidence are "Eras of Revelation" - when what was overlooked, ignored, or unspoken, all comes out into the open. Scrutiny naturally rises as confidence falls.  

In all of this, yet a bullish sign from MPIC's delisting?